The Supreme Court on Monday gave the nation's federal utility regulator a major victory over electric utilities, allowing it to keep its landmark energy-savings program that compensates consumers for reducing power consumption during times of peak demand.
The Federal Energy Regulatory Commission's demand-response program is touted as a key tool in making President Obama's climate change rules work in the states. Environmentalists say the program helps balance electricity supplies with demand, which is important to integrating more renewables and staving off the need for new fossil fuel power plants.
"We now hold that the commission has such power and that the rule is adequately reasoned," reads the high court's majority decision written by Justice Elena Kagan.
The high court by a vote of 6-2 reversed a lower court's decision that the commission did not have jurisdiction to implement the program because it affected energy rates in the retail markets overseen by the states. The lower appellate court ruled that violated the commisison's jurisdiction, which only pertains to federally overseen wholesale electricity markets. Justice Samuel Alito did not participate in the decision.
"Our analysis of FERC's regulatory authority proceeds in three parts. First, the practices at issue in the rule — market operators' payments for demand response commitments — directly affect wholesale rates," the decision reads. "Second, in addressing those practices, the commission has not regulated retail sales."
"And third, the contrary view would conflict with the [Federal Power Act's] core purposes by preventing all use of a tool that no one (not even [the opposing utility firms]) disputes will curb prices and enhance reliability in the wholesale electricity market," the court continues. FERC's statutory authority gives its the "responsibility" to regulate "the interstate wholesale market for electricity — both wholesale rates and the panoply of rules and practices affecting them."
Justices Antonin Scalia and Clarence Thomas dissented, saying the majority erred in its definition of electricity sales under statute. The two conservative justices say the court should have easily found that the commission overstepped its jurisdiction by affecting prices in the state markets.
"The majority is wrong even on its own terms, for the rule at issue here does in fact regulate 'retail electricity sales,' which are indisputably 'matters ... subject to regulation by the states' and therefore off-limits to FERC," the dissent reads.
"The demand response participants are retail customers — they purchase electric energy solely for their own consumption. And FERC's demand-response scheme is intentionally 'designed to induce lower consumption of electric energy' — in other words, to induce a reduction in 'retail electricity sales' — by offering 'incentive payments' to those customers," the dissent argues.
"The incentive payments effectively increase the retail price of electric energy for participating customers because they must now account for the opportunity cost of using, as opposed to abstaining from using, more energy," say Thomas and Scalia. "In other words, it literally costs them more to buy energy on the retail market."